In our previous session, we focused on the tax differences that mostly dealt with the individual tax rules. In this instalment, we’ll dig a bit deeper into some specific items that may or may not affect you, but will give you a sense of what to expect from either side in the future.
Student loans that are cancelled or forgiven are currently taxable income in most cases. The Trump proposal would continue this treatment. The Trump plan also includes tax credits for donations to private school scholarship programs in lieu of a deduction. The Biden plan would cancel student debt tax free after the borrower has enrolled in a payment plan for 20 years.
Currently there is no tax when a transaction is entered into to purchase investments or financial securities. The Trump plan does not change this. The Biden plan would impose a transaction tax on financial transactions.
Currently “Carried Interest” (income from a private investment fund to its general partner) is taxed at LT Capital Gain rates. This has been a widely criticized loophole in the tax law for many years allowing Wall Street types to pay less tax on their earnings. Both the Biden and Trump plans would eliminate this benefit. Q: If both sides agree, why don’t they just do it?
Payroll taxes – currently the wage base for Social Security taxes stops at $137,700. Employees earning over that amount in a calendar year quit paying at that point. Medicare taxes go on forever. The Biden plan would reinstate Social Security taxes on wage earners (and the self-employed) making over $400,000. Trump would waive payroll taxes through the election to boost the economy, at least that was the published plan. He has since allowed for a deferral of employee social security taxes effective Sept 1, 2020 and going through the end of the year. There are a lot of unanswered questions about this and may be the subject of a future Blog.
AB5 is the now famous California law that seeks to force the gig economy to offer benefits and employee classification to their contract workers. Its being fought by Uber and Lift as well as many in Silicon valley and has resulted in the exporting of many freelance jobs of all kinds out of California. The Trump plan is silent on the issue. The Biden plan seeks to apply the AB 5 concept nationwide.
Stay tuned for the next installment, when we dive into Health Care and retirement benefits!